5 Stocks to Play the Austin Chalk
The Bakken is booming, but there's another U.S. oil play that is getting a second look: the Austin Chalk. Like the Bakken, this play has attracted many of the industry's top exploration and production outfits. Below, I'll take a look at exactly what the Austin Chalk is and break down five of the companies that are leading the way in the Texas play.
What is the Austin Chalk?
The Austin Chalk curves up from southwestern Texas across Louisiana and into part of Mississippi. Lying directly above the Eagle Ford shale, the Chalk ranges in thickness from 15 meter to 180 meters and produces both oil and natural gas.
Like many other U.S. oil fields, the Austin Chalk was first drilled in the early 20th century and is currently experiencing a renaissance of sorts. The early wells were vertically drilled, but that has since changed, and horizontal drilling is making an impact in the region.
Lucas Energy is an intriguing company that echoes the notion that there is more oil in the Chalk than we once thought. Though it now also drills new wells, the company started out buying low-output and abandoned wells and bringing them back to life.
In the past seven months, the company has drilled two brand-new wells and three new laterals from old wells in the Austin Chalk. The results are best viewed through the lens of the company's last fiscal year, which ended in March. Through the first half, the new wells produced 200 barrels of oil per day, but by the end of March that number had increased significantly to 500 bpd.
Swift Energy (NYSE: SFY)
Swift Energy has been in the Austin Chalk since 1998. The majority of its acreage is in central Louisiana, extending slightly to the west into eastern Texas, and the company expects to increase production from these assets by 14% to 20% this year.
Swift expects to be involved in up to six non-operated wells in Louisiana's Burr Ferry field this year. Looking ahead, the company is evaluating acreage in the Masters Creek field and expects to resume drilling there in 2013.
Halcon Resources (NYSE: HK)
When Halcon Resources bought up GeoResources in April, the company picked up 200,000 acres in the Austin Chalk. Twenty percent of GeoResources' proved reserves -- about 5 million barrels of oil equivalent -- is in the Austin Chalk. The majority of the acreage is held by production.
GeoResources has two areas of operation in the Chalk: the Giddings field and the Brookeland field. It has drilled 17 wells in the Giddings area and boasts a 100% success rate there. There are 20 more potential locations for gas wells, but the company has also drilled two successful oil wells. GeoResources believes that 50% of its drilling locations in the Brookeland area are liquids-rich.
The Halcon acquisition is expected to close in the third quarter.
EV Energy Partners (Nasdaq: EVEP)
EV Energy Partners is targeting organic growth in four regions in 2012, and one of those is the Austin Chalk. The company will operate a one- to two-rig drilling program in the Chalk this year, utilizing horizontal drilling and multistage fracking.
The acreage is part of central and eastern Texas assets that accounted for 17.8 million cubic feet of natural-gas equivalent per day produced in 2011. Proved reserves in the region total 60.9 billion cubic feet of equivalent.
Eagle Rock Energy Partners (Nasdaq: EROC)
Eagle Rock has six rigs currently drilling in the Austin Chalk. Four of the rigs are drilling on Eagle Rock acreage, while the other two rigs are supporting the drilling activities of larger producers in the area.
Management has gone on record stating that if drilling activity continues to increase, Eagle Rock may install a cryogenic processing center with capacity ranging from 25 MMcfd to 60 MMcfd in Louisiana. Because the Louisiana site was the home of a processing center in the 1990s, Eagle Rock has the ability to install a processing unit relatively quickly, giving it the advantage of monitoring activity and demand before moving full-speed ahead.
Foolish bottom line
The Austin Chalk is yet another energy reserve that is booming because of horizontal drilling. Until the price of natural gas picks up again, expect companies in the Chalk to focus on oil and liquids production. The other thing to watch with the Chalk is the proximity to Cheniere Energy's proposed LNG export terminal. Depending on some political decisions, in two to three years we may see a giant uptick in activity geared toward natural-gas exports. In the meantime, monitor the region's progress by clicking here to add all of the companies above to My Watchlist.